Microeconomics and Macroeconomics | Assignment

Running head: MICROECONOMICS AND MACROECONOMICS
Microeconomics and Macroeconomics
Name of the Student
Name of the University
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MICROECONOMICS AND MACROECONOMICS1
Table of Contents
Part A...............................................................................................................................................2
Answer 1......................................................................................................................................2
Answer 2......................................................................................................................................2
Answer 3......................................................................................................................................3
Answer 4......................................................................................................................................3
Part B...............................................................................................................................................4
Answer 1......................................................................................................................................4
Answer 2......................................................................................................................................5
Answer 3......................................................................................................................................6
Answer 4......................................................................................................................................7
Answer 5......................................................................................................................................7
Answer 6......................................................................................................................................8
Reference.........................................................................................................................................9

MICROECONOMICS AND MACROECONOMICS2
Part A
Answer 1
Coles and Woolworths are two big super markets that operate in Australia. They operate
in the retail industry. The retail industry is majorly dominated by four super market companies
and they are Coles, Woolworths, Aldi and IGA. Coles and Woolworths together captures over
60% of the retail market share (Eichner 2019). Therefore, it is evident that there are few firms in
the industry and the firms have market power as they are able to control price. Thus, it can be
said that the markets structure in which Coles and Woolworths operate is of oligopoly in nature
since according to theory of market structure in oligopoly there are few firms with market power
and thus has control over price. The graphical illustration of the market structure is given in
figure 1.
Figure 1: Oligopoly retain industry in Australia
Source: (Created by the Author)

MICROECONOMICS AND MACROECONOMICS3
Answer 2
The market structure in which Coles and Woolworths operate is an oligopoly market. In
oligopoly market firm faces downward sloping demand curve. The pricing decision is made in
the market based on the profit maximizing output which is given by equality point of marginal
cost and marginal revenue (Geltner, Kumar and van de Minne 2019). The price is however is
obtained from the demand curve. Thus, at this price Coles and Woolworths earn revenue that
provides supernormal profit since the price is higher than the price at perfect competition. In
oligopoly market, every firm can lower its price if the other firms lower the price. Thus, lowering
price would only lower the profit of the firms operating in the market. In addition to that, the
price discount war would exert pressure on the suppliers and thus they would go out of business
which would affect Coles and Woolworths adversely. Therefore, price discount war is neither in
interest of Coles nor of Woolworths.
Answer 3
With reference to source 3, it can be said that there are numerous farmers in the
vegetables industry. There are 136, 800 farms, out of which 13% are vegetable producing farms.
In addition to that, the farmers in the industry have no control over the market and thus price
(Azevedo and Gottlieb 2017). This statement can be substantiated from the evidence of price
taking character of the industry shown in source 2. The price discount war of Coles and
Woolworths has forced the vegetable farmers to lower their price. Therefore, it can be observed
that there are numerous farmers with no control over price indicating that the vegetable industry
is of perfect competitive market structure.